A Primer on Real Estate Investing

Posted by Fitz Villafuerte under Investing on April 16, 2012

An OFW friend of mine is thinking of buying a brand new condo unit as an investment.

I immediately told him that he shouldn’t and it’s a BIG mistake.

He fell silent, and I knew I had to explain why I think it was a bad idea.

Below is a summary of what I told him – my personal primer on real estate investing.

And I hope that this can help you get more clarity and a better understanding on how to invest in real estate properties, specially in the Philippines. This post is dedicated to all my OFW readers.

how to invest in real estate A Primer on Real Estate Investing

WHAT IS AN INVESTMENT?

There are many definitions of the word investment; but for me, an investment is something that has potential to make money for you.

More importantly, whenever you “buy something as an investment” – even before you take out a single centavo from your pocket – you should already know how that investment will give you income.

Going back to my friend, I asked him, “What are you planning to do with the condo unit?”

“It will be a place where I can stay whenever I’m in the country,” he replied.

“And what happens while you’re working overseas?” I asked.

“My sister can stay there perhaps, or I can have it rented out,” he answered.

“If someone’s renting the unit, and you decided to come home. Are you going to evict the tenant so you’ll have a place to stay?” I asked, challenging his line of thought.

He fell silent again, and began to realize what I’m trying to make him understand.

MAKING MONEY FROM REAL ESTATE INVESTMENTS

There are three basic ways to make money from real estate investments:

  1. By leveraging on the property’s equity
  2. By selling the property
  3. By having the property rented out

If you’re not planning to do any one of these three, then you’re not buying the property as an investment.

Or in other words, if you (or your family) will be living in the property – then it’s NOT an investment – at best, it will be “a testament of your hard work”.

investing in real estate A Primer on Real Estate Investing

LEVERAGING ON EQUITY
Buying a property increases your net worth. And when the price of that property increases, then your net worth also increases. This is more commonly known as portfolio income.

However, this income is just on paper – and it’s practically “useless” unless you cash it out (by selling it) or you leverage the gain in equity.

How do you do this? There are many ways, and one example is leveraging the property as collateral to secure a loan to start a business.

Some savvy real estate investors refinance the same property to get some cash out, and then use that money to buy another property.

How exactly that happens is another story, and worth a separate blog post, but I hope you understand what I’m trying to say here for now.

SELLING THE PROPERTY
How do you buy and sell real estate for profit?

The Wrong Way: Buy a property. Wait for it’s value to appreciate. Sell.

This is wrong because your money will be tied up for many years before you can realize some income. It is for the same reason why I personally think it’s not a good idea to buy condo units at preselling as an investment.

The Correct Way: Buy an existing property that’s below market value. Sell it at a higher price, but still at below market value.

Someone I know bought a bank foreclosed property selling at 60% below market value. After 2 weeks, he sold it to someone at 80% below market value.

A win-win situation for both him and the buyer if you think about it – and he came out P200,000 richer. How he was able to do that is again, another story and worth a separate blog post; but I know you get the idea.

Another Right Way: Buy an existing property. Fix or repair it to increase its value. Sell it at a higher price.

This is also a good way to make money from “flipping” real estate; even better if you can buy the existing property at below market price.

RENTING OUT THE PROPERTY
If you prefer passive income, then renting out your property is a good option to take. However, remember that this is not as easy as it sounds. You need to know how to:

Spot a good rental property. Remember that real estate is all about location, location, location!

Properly screen tenants. You need to avoid problematic non-payers and trouble-makers. You’re not Big Brother and evicting tenants will not be as easy.

Be competent in property management and maintenance. It’s not just about collecting rent every month! There are laws that you need to learn and follow.

real estate investing A Primer on Real Estate Investing

IN CONCLUSION

Investing in real estate is not just a rich man’s game – everyone can do it; that’s the good news!

But just like any investment, you need to learn and know exactly what you are going into. You need to have your investment objectives defined, and you need to have a clear plan on how you will achieve them.

Many have already achieved financial freedom through real estate investing. And you can too – if you are willing to focus, learn, be patient and work hard.

Get more no-nonsense investing tips like this by subscribing to Ready To Be Rich.

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Photo credits: chberge and imagesofmoney

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17 Responses to “A Primer on Real Estate Investing”


  1. N/A says:

    Very helpful post! Thanks a lot!

    I remember those condo unit dealers in malls and MRT stations. They would hand out their flyers and say “investment po sir.” If they knew how to make real estate an investment, then lying to people is their game. Otherwise, they don’t really know what they’re selling.

  2. Benjie says:

    This is very useful. I got quite interested to know your “next blog post” ideas. Hope to read those soon!

  3. I agree with Fitz that in the context of what his friend said, it was not an investment. However, it would be interesting to know what was the real motive for buying a condo. I feel sad for people when they work so hard overseas and yet thier immediate families living in the Philippines do not have their own place to stay. I think that every Filipino family should have their own property and that it should be a priority after basic food and education expenses.

  4. vher says:

    Fitz,

    I always read your blogs, but now your blog was related to me.
    As a OFW here in UAE I bought a property worth 3.2m then renting out to 8k/mo. Is it worth it?

    You Stated that “Be competent in property management and maintenance”. It’s not just about collecting rent every month! There are laws that you need to learn and follow. Can you send me these laws to have a tools and knowledge I can use.
    Thank you.

  5. Thanks for this post sir Fitz. Nakakadagdag ng confidence din yung mga techniques na binibigay mo bukod sa knowledge. I hope na once na maging ready na ko to invest uli, magawa ko na rin ito sa real estate. Medyo umatras na rin kasi ko muna sa ibang investments ko (stocks) dahil na rin sa natutunan ko na readiness level bago dapat magstart maginvest.

    May point, kasi once na kailanganin talaga bigla ang pera, dahil liquid masyado sa stock market, minsan e nasesell ko pa ng wala sa tamang presyo. Kaya sa ngayon, magready muna ako, at least makaipon ng 6 mos of our monthly expenses. Thanks again.

  6. Desertman says:

    @ Fitz

    Nice post. I agree with your statement about property investment. It’s true, everyone can do it naman talaga coz I’ve been studying it recently and it seems to be a very promising business venture. But i need more time to look into it before actually doing it.

    @ theignoredgenius

    Stock trading right now is quite good. But my rule of thumb is what you can invest in stock market should only be your extra cash. Medyo mahirap syang gawing main source of income if you are still on the start-up phase as an investor. By the way, hope you could find time to check out my blog. I had some detailed discussion about the stock market doon.

    Just my two cents.
    Thanks.

  7. Vengieric says:

    thank you for this post. i felt like you are talking to me. i am thinking of buying a small house and lot when we go to Philippines by the end of this year. mabenta kase sa lugar namin ang room/house for rent, malapit kase sa mga pabrika… but your post made me think about it more in depth pa…

  8. rprondina says:

    Sir,

    Would you mind sharing the laws that you mentioned about renting. I do specifically familiar with RA 9653 or the rent control act of 2009 but may be you can help with regards to the right of the tenant when in time of eviction is needed to practice.

  9. andro says:

    nice post..

    this is HARD ASSETS! very sooooooo easy to BUY!

    but very sooooooooo HARD to SELL!

    thank you, very informative topic..

  10. sure desertman. actually matagal tagal na rin ako sa stock market (5 years) but yung stages na yun is for me, parang kindergarten to elementary pa lang.

  11. Nice article. I agree that buying condo is not an investment. Investment should gives you something in return.

    More power to your site. Kudos!
    :)

  12. carla says:

    Hi, did you already happen to write an article on leveraging on equity? I’d like to learn more about it. Thanks a lot.

  13. Fitz says:

    Hi carla, I’ll probably write about that soon. I am not currently into real estate investing, but I do have friends who are and I’ll certainly take some time to ask them about it. Thanks.

  14. Art says:

    Good article. I’m a real estate investor myself and what Fitz is saying here are very true. If you really want to go into real estate investing, you need to be sure that you’re well prepared financially, intellectually and most importantly, emotionally. You will need to spend time to study and learn the intricacies of real estate transactions. Now, if at this point you don’t have the time yet because you’re working, the next best thing to do is to partner with somebody who already knows the business. This is what I did to get started.

  15. ACG says:

    Hi Art, how did you partner with somebody? Is he/she a very close friend? or a known entity in real estate industry? I grew up in a family (both sides) that has investments in real estate, with my lola’s on both sides having several renting units, so I am really interested in adding this as part of my portfolio in the future.

  16. Jessie tan says:

    I do believe with what fitz hav said that buying condo unit is not an investment, i am an ofw and i bought a unit last 2007 with a pre selling price whic i may say was really cheap that time, paid it in full last 2010 and it was turned over last january 2012, now im back here in the phl for good and im stayingin the province and i dnt be needing it anymore, i want to rent it out or sell it with profit, now i find it so difficult to sell it it seems market is so saturated, i even asked a below market price for the unit even though i spent a lot for its interior design. Too bad for me, im still hoping i can get a buyer for my condo…

  17. Mary says:

    How I wish that I should have read this article before buying a condo. I bought a pre selling condo way back 2012 in Tagaytay City. My objective why I bought this is to rent it out. But it was too late na naisip ko that ung rental on that place is seasonal. Looks like it will not be that income generating. So now,Im selling the unit even below its current market price.

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